Threatened  Disruption  of 
Southern  Pacific  Lines 


Statement  by 

Wm.  Sproule, 

President,  Southern  Pacific  Co. 


SAN  FRANCISCO 
JUNE  12,  1922 


0 


N 


SOUTHERN  PACIFIC  COMPANY 

(Pacific  System) 

Shown  (in  red)  are  lines  owned  by  the  Central 
Pacific  Railway  which  have  been  leased  by  the 
Southern  Pacific  Company  since  1885.  The  lines 
of  the  two  companies  have  been  operated  under 
one  management  since  1870.  The  U.  S.  Supreme 
Court  on  Monday,  May  29th,  1922,  decreed  that 
the  two  properties  should  be  separated. 


DSCBURC.  / 


\i- 


N     A 


ftTUCSON 


O 


Threatened  Disruption  of 
Southern  Pacific  Lines 


THE  public  are  so  widely  interested  in  the  present  discussions  of  the  Southern 
Pacific  System  as  it  now  exists,  in  contrast  with  what  may  happen  to  it  under 
the  recent  decision  of  the  Supreme  Court  of  the  United  States,  that  it  seems 
proper  for  me  to  submit  to  our  customers,  who  are  the  shipping  and  traveling  public, 
some  leading  facts  in  the  situation  with  which  they  are  confronted  as  well  as  this  Com- 

pany. 

The  Supreme  Court  decision  of  May  29,  1922  requires  Southern  Pacific  to  cancel  its 
lease  of  the  Central  Pacific,  to  sell  its  Central  Pacific  stock,  and  to  bring  about  separation 
of  the  two  Companies  so  that  control  of  their  operations  will  be  separate  and  independent 

of  each  other. 

The  Central  Pacific  has  been  leased  to  the  Southern  Pacific  for  thirty-seven  years, 
or  since  February  1885,  by  unanimous  vote  of  all  the  stockholders  present  or  repre- 
sented, who  constituted  more  than  five-sixths  of  the  entire  capital  stock.  The  Southern 
Pacific  has  been  the  actual  owner  of  the  entire  capital  stock  of  the  reorganized  Central 
Pacific  for  twenty-two  years,  or  since  1899. 

The  decision  of  the  Supreme  Court  is  that  both  these  transactions  are  in  violation 
of  the  Sherman  Act,  although  the  Sherman  Act  was  not  passed  until  1890,  which  was 
five  years  after  the  Central  Pacific  was  leased  to  the  Southern  Pacific. 

Besides  all  this,  there  is  sufficient  evidence  that  the  Central  Pacific  and  Southern 
Pacific  were  held  in  common  ownership  as  early  as  October  1870.  The  official  records 
prove  that  the  two  have  been  under  common  control  and  management  for  fifty  years,  or 
since  July  1872. 

The  growth  has  been  of  one  system  and  not  two;  it  has  been  responsive  to  the  needs 
of  Coast  communities  and  producers.  Whichever  company  could  get  the  money  most 
readily  was  the  company  in  whose  name  the  railroad  lines  were  extended.  It  is  well 
known  that  the  Central  Pacific  carried  a  heavy  burden  of  debt  to  the  Government  and 
the  Southern  Pacific  had  to  come  to  its  aid  not  only  in  helping  the  Central  Pacific  to  pay 
that  debt,  but  also  in  following  up  railroad  construction  wherever  desirable  from  time 
to  time. 

Thus  the  two  companies  did  what  one  company  could  not  do  under  the  circum- 
stances of  the  time.  The  result  has  been  the  growth  of  a  single  railroad  system  under 
two  corporate  names,  each  of  them  necessary  to  the  other  for  effective  service  to  the 
public  for  whose  service  the  system  was  created. 

The  Supreme  Court  now  decides  in  effect  that  the  lease  became  void  when  the 
Sherman  Act  passed,  because  of  the  Sunset  Route  through  Texas  on  the  south  competing 
with  the  line  through  Ogden  on  the  north.  The  business  fact  is  that  the  line  down  the 


37 


San  Joaquin  Valley  and  over  the  Tehachapi  Mountains  to  Los  Angeles  was  built  to  meet 
the  public  demand  for  a  railroad  through  the  San  Joaquin  Valley  and  on  to  Southern 
California,  and  the  same  public  demand  was  behind  the  further  extension  of  the  line 
from  Los  Angeles  eastward  through  El  Paso  to  Sierra  Blanca,  Texas.  The  Central 
Pacific  carried  the  extension  into  the  San  Joaquin  Valley  as  far  as  Goshen,  the  Southern 
Pacific  taking  it  up  there  and  carrying  it  on  southward  and  eastward.  Everything  that 
was  done  had  behind  it  the  backing  of  public  desire  with  the  approval  of  Congress,  for 
the  development  of  the  resources  of  California,  Oregon  and  the  other  Pacific  Coast 
States, — resources  then  dormant  but  their  possibilities  evident. 

If  the  same  urgent  work  had  to  be  done  again  and  under  the  same  public  aspects, 
the  same  set  of  railroads  would  again  be  brought  into  existence,  and  if  done  under  a 
single  corporate  name  as  well  as  single  operating  control  there  would  now  be  no  debate. 
So  I  conceive  that  the  only  question  of  present  interest  to  the  public  is  whether  or  not 
the  public  is  hurt  by  having  this  development  done  by  a  single  control  under  two  cor- 
porate names,  instead  of  having  it  done  by  single  control  with  a  single  corporate  name. 

If  the  work  had  been  done  by  either  the  Southern  Pacific  or  the  Central  Pacific 
there  would  have  been  no  suit  under  the  Sherman  Act.  Hence  the  essence  of  the  matter 
is  that  this  vast  work,  after  having  public  approval,  violates  the  Sherman  Act  in  having 
been  done  by  two  companies  instead  of  one  under  single  control. 

The  decision  of  the  Supreme  Court  turns  upon  the  Sherman  Act  because  the  suit 
was  brought  by  the  Government  in  1914  under  that  Act.  In  1917  the  United  States 
District  Court  decided  the  suit  in  favor  of  the  Company.  The  Government  then 
appealed  from  this  decision  to  the  Supreme  Court.  Thus  this  suit  brought  eight  years 
ago  charging  us  with  violation  of  the  Sherman  Act  is  decided  against  us  under  that  Act. 

But  in  this  eight  years'  interval  a  world  war  has  been  fought,  because  of  which 
every  business  is  operating  under  new  conditions,  and  the  Transportation  Act  of  1920 
passed  by  Congress  and  approved  by  the  President  February  28,  1920  is  now  the  gov- 
erning federal  law  for  the  railroads  of  the  United  States  to  meet  the  new  conditions. 
That  law  instructs  the  Interstate  Commerce  Commission  to  prepare  and  adopt  a  plan 
for  the  consolidation  of  the  railway  properties  of  the  United  States  into  a  limited  number 
of  systems.  That  law  expressly  provides  that  with  consent  of  the  Commission  it  shall 
be  lawful  for  two  or  more  carriers  by  railroad  to  consolidate  their  properties  or  any  part 
thereof,  into  one  corporation  for  the  ownership,  management  and  operation  of  the  prop- 
erties theretofore  in  separate  ownership,  management  and  operation,  under  conditions 
in  harmony  with  and  furtherance  of  the  general  plan  of  consolidation  of  the  railroads 
into  groups. 

So  since  February  28,  1920,  the  Interstate  Commerce  Commission  is  empowered  to 
authorize  in  appropriate  cases  that  which  the  Sherman  Act,  standing  alone,  might  other- 
wise forbid.  The  Interstate  Commerce  Commission  can  thus  take  up  the  chain  of 
events.  The  fact  is  that  Government  control  of  the  railroads  has  so  increased  and  the 


policies  of  the  Government  so  changed,  since  the  suit  in  question  was  begun  m  1914, 
that  the  situation  needs  to  be  dealt  with  in  the  light  of  present  conditions,  and  noi 
conditions  that  prevailed  from  1885  to  1899.    The  public  commissions  now  have  powe: 
over  rates,  service,  extensions  and  issue  of  securities  by  the  railroads.    Every  essential 
factor  in  the  railroad  business  is  supervised  by  the  commissions  created  to  prote 
general  public  interest.    The  Transportation  Act  of  1920  is  designed  to  meet  present 

conditions. 

The  Interstate  Commerce  Commission,  following  the  mandate  in  the 
tation  Act  of  1920,  has  already  prepared  a  plan  for  consolidating  the  railroads  into  a 
limited  number  of  systems.     This  plan  was  tentatively  presented  by  the  Commis 
on  August  3,  1921,  serving  notice  on  all  railroads  to  prepare  for  hearings. 
tentative  plan  the  Central  Pacific  and  Southern  Pacific  remain  together, 
conceded  that  the  Interstate  Commerce  Commission,  by  reason  of  its  position,  has  at 
its  command  a  greater  knowledge  of  the  railway  traffic  of  the  United  States  and  its  com- 
petitive and  other  features  than  any  other  organization  in  our  Nation.    As  a  busmes 
question  the  Commission  evidently  saw  the  wisdom  of  not  disturbing  the  present  control, 
and  found  no  reason  to  believe  that  there  was  any  undue  restriction  of  competition  i, 
the  situation  now  existing;  or  if  there  were  any  titular  restriction  it  was  more 
balanced  by  the  other  conveniences  it  afforded  to  the  public. 

The  tentative  grouping  by  the  Interstate  Commerce  Commission  thus  tends 
remedy  the  unfortunate  legal  situation  presented  by  the  Sherman  Act  standing  alone 
The  grouping  indicated  by  the  Commission  provides  the  remedy  by  which  one  of  the 
principal  transportation  systems  of  the  Nation  need  not  be  torn  asunder,  after  hav.ng 
been  built  as  one  structure  during  a  period  covering  several  decades  and  making  for  1 
people  a  convenient  unit  of  service  covering  almost  the  entire  length  of 

Coast.  TT  ,.    ,  „, 

It  is  needless  to  say  that  the  decision  of  the  Supreme  Court  of  the  United 
carries  the  full  weight  of  judicial  authority  on  the  issue  before  the  court.     Following 
upon  it,  however,  new  constructive  aspects  of  the  subject  have  to  be  considered  as 
practical  questions  for  the  users  of  these  railroads,  as  well  as  their  owners,  in  c 
determine  what  is  best  in  the  public  interest. 

I  take  it  that  the  Supreme  Court,  in  passing  upon  the  legal  question  involved,  has 
not  concerned  itself  with  the  possible  consequences  to  follow  from  that  decision  und 
a  law  which  the  Transportation  Act  of  1920  supersedes  as  to  the  railroads,  wheneve 
the  Interstate  Commerce  Commission  takes  jurisdiction  under  the  terms  of 

Q  n± 

'  There  can  be  no  doubt  that  all  the  public  tribunals  and  responsible  officers  of 
Government  concerned  have  a  common  desire  to  do  that  which  will  be  practical  and 
wise  and  with  least  disturbance  to  all  the  parties  concerned.  But  the  positive  suppo 


of  public  opinion  is  needful  in  working  out  the  problem  to  such  a  constructive  con- 
clusion as  will  allow  this  railroad  system  to  remain  at  the  service  of  the  public  for  whom 
it  was  designed  as  built.  The  public  have  nothing  to  gain  by  breaking  up  these  proper- 
ties; they  stand  only  to  lose  by  the  complications  that  would  follow. 

It  is  not  a  question  of  unmerging  two  roads  separately  built  and  developed,  but 
afterwards  put  together  under  a  merger  plan  of  finance  and  control.  The  present 
instance  is  one  in  which  there  has  been  no  merger,  but  on  the  contrary  the  roads  have 
grown  and  developed,  like  a  healthy  tree,  from  a  common  root  into  a  single  unit  of 
growth  and  service  throughout  half  a  century.  This  single  unit  can  now  be  separated 
into  two  units  only  by  a  process  of  disintegration  and  tearing  into  confused  remnants  of 
railroad,  neither  of  which  can  function  of  itself.  Therein  would  lie  a  new  and  real 
restraint  of  trade.  By  the  very  nature  and  circumstance  of  their  construction  beginning 
with  pioneer  days  neither  the  Southern  Pacific  nor  Central  Pacific  can  serve  the  public 
adequately  and  well  when  one  is  separated  from  the  other. 

We  recognize  that  the  interest  of  the  Southern  Pacific,  or  indeed  of  the  Central 
Pacific,  or  both  of  them  as  corporate  entities,  is  a  lesser  factor  in  this  instance.  We 
recognize  that  whatever  is  to  the  public  interest  in  the  light  of  experience  up  to  the 
present  time  is  likely  to  prevail,  as  affecting  the  people  served  by  and  using  this  railroad 
system. 

Based  upon  an  extended  experience  which  began  with  these  properties  in  1882,  I 
am  persuaded  that,  regardless  of  any  personal  or  official  interest  of  my  own,  the  great 
public  interest  is  best  served  by  recognizing  that  even  a  technical  violation  of  the  Sher- 
man Act  is  of  small  detriment  to  the  public,  when  compared  with  the  large  and  extended 
and  convenient  service  given  to  that  public  by  the  present  railroad  system  of  the 
Southern  Pacific  Company  under  existing  regulative  control.  The  Commissions,  State 
and  Federal,  are  endowed  with  all  the  powers  necessary  to  make  that  control  potent 
and  complete;  while  in  their  discretion  elastic  enough  not  only  to  promote  private 
investment  for  upbuilding  the  railroad  service  to  the  people,  but  also  to  promote  private 
initiative  that  sound  and  progressive  management  may  be  encouraged  in  the  general 
interest  of  all. 

There  seems,  therefore,  to  be  proper  motive  for  direct  appeal  to  these  Commissions 
to  the  end  that  the  power  lodged  in  the  Interstate  Commerce  Commission  under  present 
law  (which  is  the  Transportation  Act  of  1920)  be  exercised  to  maintain  the  operations 
of  this  transportation  system  as  a  unit  justified  by  the  general  experience  of  the  people 
served;  and  if  necessary  for  this  purpose  a  new  power  might  well  be  created  by  appro- 
priate legislation. 

WM.  SPROULE, 

President,  Southern  Pacific  Company. 
San  Francisco,  June  12,  1922. 


Pamphlet 

Binder 
Gaylord  Bros. 

Makers 
Stockton,  Calif. 

PAT.  WN.  2),  1908 


